Do you have too many bills to manage and are looking forward to consolidating your debt by rolling many payments into one? If you have poor credit but have good equity available in your home, then you may find home equity loans quite attractive. Home equity loans are very similar to standard residential mortgages, and even more similar to home equity line of credit loans. However, a home equity loan has very distinct differences that you need to be aware of if you want to get the best rate on a home equity loan.

These loans allow homeowners to borrow money against the available equity in their homes. Those who want to borrow a relatively large amount of money or who don’t have good credit often find the home equity loan to be attractive. Home equity lines of credit (HELOCs) are credit lines given to homeowners based on the amount of equity in their home, and are a common type of loans used by borrowers to access their home equity. Unlike home equity loans, which provide a one-time lump sum loan secured against a home, HELOCs provide an open line of credit, with the credit limit determined by the amount of equity in the home, allowing homeowners to borrow what they need, when they need it.

While there can be various reasons to consider while you decide to tap into your home equity, some popular ones are school or college tuitions, bill consolidation, home repair or renovation and medical expenses. Home equity mortgage loans allow you to choose the amount that you wish to borrow, close on the loan, and receive a check for the amount you have chosen. What you need to do then is to make regular payments structured over a period of years, and upon completion of those payments, your home equity loan will be paid in full. The disadvantage with a home equity loan is that in case you need additional funds, you will need to go for an additional loan which would imply additional closing costs. But the advantage of such a loan is that it carries a fixed rate of interest allowing you to plan how you would pay back the loan.

A HELOC, on the other hand, offers you a flexible option of financing if you are taking up a project such as home repair or renovation and are not sure of the unforeseen expenses that may suddenly arise. Using this financing option, you can withdraw money again and again up to the value of the loan. This is to say that as you continue to pay back your principal, the amount of principal paid back is always available to you to be drawn at any time.

It is always advisable to consult your loan officer or financial planner to decide which home equity financing option would best suit your needs. Whether you choose a home equity mortgage loan or go for a HELOC, for most of these home loans, the interest you pay is tax deductible, making home equity financing an attractive option. However, it is important to know that when you take out a home equity loan, the lender can repossess your home if you default on your payments. But if you are confident of your ability to make regular payments till the time you pay your loan in full, tapping into your home equity can indeed be a great financing option.

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Category: Finances
Keywords: home equity loans, home equity mortgage loans, home loans